Why Sensex Crashed 600 Points, Biggest Fall in 2 months

Sensex corrected by 550 points Nifty almost 200 Points making today as Black Monday,biggest decline in 2 months. Last big decline was seen on 06 Jan 2015. Budget was good market rallying and out of no where we saw a correction. I am discussing few points below which would had led to the correction.

Concerns over Fed rate hike

Hike Rate means sucking liquidity out of system and this will flight to safe assets in Bonds and stronger currency like USD and money getting sucked out of Emerging market. India Markets have received $11Billion in 2015 till date and up 8% till date so profit booking can be done by FII’s.

Expensive valuations of Stock Market

Sensex has rallied over 1500 points so far in the year 2015, after a strong 30 per cent rally in the calendar year 2014 which has pushed the valuations for Indian markets higher. Valuation for Indian markets at 19.4x on FY15E (16.6x on a rolling one year forward) and 22.5x on CAPE basis which are above long-term averages.

Sensex is trading at more than 20 times FY15 and 17 to 18 times FY16 earnings, ALSO PE (Price to Earning Ratio) as discussed in Weekly Analysis is touching 24 market so valuation are pretty expensive now.

Technical

As discussed in Weekly Analysis RBI rate cut was unable to break the upper trendline which has been holding since 2014. Correction are in range of 400/526 points from this trendline we have seen 269 correction so far. Another 150/200 points can be seen break of 8850.

No Pick up in Earnings growth

It will take at least two quarters for the easy monetary policy benefits to trickle down and pick-up in earnings growth is likely to be the next big trigger for markets. The third quarter results were quite disappointing worst quarter result in almost 5 years.

Dollar gaining strength

Sensex was down over 600 points as weak rupee that slid by by 50 paise to 62.66 against the US dollar.

The dollar index is gaining strength against basket of currencies including rupee. The dollar has had an almost unbroken rally since June as strong growth in the world’s top economy raised hopes the Federal Reserve will hike rates around the middle of this year.

Study of OI table for last about 15 days is clearly indicating that 9000 would be playing as the strong resistance and 8500 a good support. this was supported by negative divergences at hr, day and weekly charts.

Why could you not predict a big correction earlier instead of being bullish in all your analysis. The markets were expensive from a P/E point of view from a very long time but you never mentioned that before. Any retail investor should still think twice before investing even at 8600 levels.

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